A price escalation clause permits price changes when defined cost drivers or events move beyond agreed conditions. It should specify the formula, evidence, timing and any cap or threshold.
How should a business apply Price Escalation Clause?
Name the index or cost element, base date, review frequency, lag, currency, sharing rule and treatment of decreases.
What records support Price Escalation Clause?
Keep baseline values, published index or supplier evidence, calculation, notice, approval and effective transactions.
Price Escalation Clause: control and evidence
| Area | What the record should show |
|---|---|
| Control | Name the index or cost element, base date, review frequency, lag, currency, sharing rule and treatment of decreases. |
| Evidence | Keep baseline values, published index or supplier evidence, calculation, notice, approval and effective transactions. |
| Tradeoff | A clause that addresses increases but not decreases creates one-way exposure. Symmetry should be an explicit negotiation point. |
What should buyers verify about Price Escalation Clause?
A clause that addresses increases but not decreases creates one-way exposure. Symmetry should be an explicit negotiation point.
